Losing $317 billion makes U.S. debt safer for Mizuho to HSBC

The biggest investors in Asia and Europe are keeping their money in Treasuries even after the steepest two-month loss for the securities erased $317 billion of market value.

Mizuho Asset Management Co., which oversees $32 billion, added Treasuries due in 10 years (CBOT:ZN.C) or longer to its holdings in the past month. HSBC Private Bank, with $480 billion in assets, bought U.S. notes when 10-year yields rose to 2.5%. Deutsche Asset & Wealth Management, which manages about $1.3 trillion, is holding debt maturing in less than four years, betting American interest rates will remain subdued.

After doubling holdings of Treasuries to $5.6 trillion in the past five years, overseas investors are resisting the market’s 3.2% slump in May and June and last month’s record $79.8 billion of withdrawals from bond funds. Since the Federal Reserve signaled it may slow the pace of asset purchases this year, the world’s biggest and most-actively traded debt market now offers the highest yields relative to other developed nations in three years.

“It’s the most liquid market in the world,” Yoshiyuki Suzuki, the head of the fixed-income department in Tokyo at Fukoku Mutual Life Insurance Co., which oversees $57.1 billion in assets, said in a phone interview on July 2. “The market has been volatile and some investors may not like it, but there is no reason to avoid U.S. Treasuries. The current movement is an overreaction.”

Holding On

Suzuki said he purchased Treasuries maturing in about 10 years in May, and added to that position in late June.

Benchmark 10-year note yields rose to 2.74% last week from this year’s low of 1.61% on May 1. The price of the 1.75% security due in May 2023 fell 2 2/32, or $20.63 per $1,000 face amount, to 91 1/2 last week.

The yield rose to as high as 2.75% today before dropping seven basis points, or 0.07 percentage point, to 2.67% at 10:03 a.m. New York time.

Yields have risen 32 basis points since June 19, when Fed Chairman Ben S. Bernanke said policy makers may begin to reduce $85 billion in monthly bond purchases should the world’s largest economy meet the central bank’s goals. The average yield in the past five years was 2.74%.

Treasuries maturing in 10 years and more yielded 85 basis points more than non-U.S. sovereign debt on July 5, according to Bank of America Merrill Lynch indexes. Similar maturity non-U.S. government debt yielded more a year earlier.